First foray into XIV

I have been investigating VelocityShare’s XIV inverse volatility ETN, and I’m very impressed.  I’ve backtested it through the beginning of 2010 and I’m getting some very attractive numbers—150% gain for the year.   At the worst of the Flash Crash it would have gone down around 20% YTD, which is better than I would have expected.   This looks like the first volatility ETN/ETF that warrants a buy and hold approach—although I think a trailing stop of around 3% is probably a better strategy.

Bought XIV at 122.42 today.  The spread was running about  $0.20.  I hit the ask, rather than try to split the spread.

Categories VIX

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5 thoughts on “First foray into XIV”

  1. Isn’t 3% trailing stop too tight? On 9/8/2017 VXX went up 3% intraday because of fear that NK would do something on their national holiday (9/9). Nothing happened and VXX gapped down 4% Monday.

    Had you had a 3% trailing stop then, you’d be shaken out on Friday for a 3% loss then miss out on the 4% gap down Monday on re-entry.

  2. Hi Warren,
    Given the normal daily moves of XIV, a 1% stop wouldn’t be much good–as you point out. You’d probably be stopped out every day. Backtesting against 2010, even with the Flash Crash an approach starting Jan 1 with a 3% trailing stop and then stayed out of the market for 3 days each time the stop triggered limited the damage to a couple of percents v.s. the -18% of a buy and hold approach.

    I think the biggest problems with trailing stop approach is gapping down when the market is closed and disrupted markets like the flash crash. In back testing a 3% trailing stop, with an out of market pause of a couple of days gets you out of the market before the really heavy gapping down occurs. The VIX tends to have a very sharp “attack” time, with a drawn out decay. Of course back testing can be really deceptive–the future never does it quite the same way. I’m am pretty confident that contango will continue driving VXX down, and I think this is a big opportunity to profit from.

    I’ll post more on this within a few days.

    — Vance

  3. Would the 3% trailing stop be enough protection for a 15% correction or another May ‘Flash Crash’?

    Wouldn’t an insane stop of 1% be required – especially when initiating a position after so long without a correction?


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